Motorola shares soar on outlook

A day after posting a slightly lower-than-expected second-quarter loss of $232 million, Motorola Inc. said Thursday it expects to regain profitability by the fourth quarter.

In a conference call Thursday morning, the Schaumburg-based telecommunications giant company said it will likely post a third-quarter loss "of several cents per share" before rebounding to a "slightly profitable" position by the fourth quarter. The company also said it is increasing from 26,000 to 30,000 the total number of jobs it plans to cut in 2001.

After losing value in Wednesday trading, Motorola shares regained ground Thursday, jumping about 16% to $19.02 per share by mid afternoon before dropping slightly to $18.08. The stock opened Thursday at $17.02.

The company, which continues to struggle in its semiconductor and personal communications sectors, on Wednesday posted a second-quarter loss of 11 cents per share, compared to earnings of $551 million, or 25 cents per share for the same period last year. A consensus of analysts polled by First Call/Thomson Financial had predicted a loss of 12 cents per share.

In the conference call, officials said they expect year-end sales in Motorola's struggling personal communications sector (PCS) to increase by 5% to 10% over last year, to 425 million to 450 million units. Second-quarter sales fell 25% to $2.5 billion in PCS .

The company continues to show weakness in its semiconductor unit, where sales dropped 38% to $1.3 billion. Thursday, officials said they don't expect that sector to rebound until 2002.

Sales overall were down 19% to $7.5 billion.

The results did not necessarily surprise analysts, who lowered their earnings estimates in April when the company warned that the second quarter would be worse than the first-quarter loss of $206 million or 9 cents per share.

"When you use the word 'worse,' it becomes carte blanche in a way," said Todd Bernier, an analyst with Morningstar Inc. in Chicago. "In theory, they can't disappoint."

And analysts were not surprised that semiconductors, an extremely cyclical business that has been battered in the soft economy, was Motorola's weakest point.

In fact, September 2000 was the last time the semiconductor unit showed any relative growth "and they've been looking at 10% to 20% negative growth" since then, said Joseph Correnti, an analyst at Wayne Hummer Investments in Chicago.

Additionally, Mr. Correnti noted that "for every place Motorola has a strength, they also have a weakness." For instance, strength in Motorola's broadband in China has been offset by weakness in Europe. "These days, no one is firing on all cylinders, and Motorola is no different."

There is no indication whether Motorola's continued poor showing means trouble for CEO Christopher Galvin, the grandson of the company's founder. Mr. Bernier said Mr. Galvin is in a strong position because he "has the board in his pocket" and is respected in general because of his gentile manner, his extreme intelligence and his fondness and knowledge of electronic gadgetry.

But Wall Street is a different story, said Mr. Bernier. "He's not exactly popular there because he's fumbled the ball at the goal line so many times. He inherited this excellent company that had 26% market share of the PCS market in 1996, and since he took over in 1997," Finland-based Nokia OYJ has become the industry leader.

In pointing out Motorola's weaknesses, Mr. Bernier contrasted Mr. Galvin with Nokia's CEO, Jorma Ollila, a hands-on CEO known for being intimately familiar with nearly every aspect of his company.

Mr. Galvin, on the other hand, until recently has been known for delegating tasks, an approach that often means "things take forever to get done. What [Motorola] needs is someone to crack the whip," Mr. Bernier said.